Eoghan Murphy
Ceist:101. Deputy Eoghan Murphy asked the Minister for Finance his views on correspondence related to pension fund investments (details supplied). [57932/12]
Amharc ar fhreagraWednesday, 16 January 2013
Ceisteanna (101)
Freagraí scríofa
I assume from the details supplied that the Deputy is referring to small self-administered pension schemes (SSASs).
I am advised by the Revenue Commissioners that SSASs are a particular type of occupational pension scheme in respect of which special requirements apply in relation to their approval, operation and supervision. The reason for these requirements is to ensure that such schemes are “bona fide” established for the purposes of providing retirement benefits. The concern in this regard reflects the fact that, as such schemes are generally one member schemes – that member typically being a proprietary director – there is potential for a conflict of interest to arise. This is because the individual is not only the sole member of the scheme but is also normally the owner of the company sponsoring the scheme and a trustee of the scheme.
In order to achieve and maintain tax-exempt approved status under tax law and Revenue rules such schemes must, for example, appoint an independent professional pensioneer trustee who cannot be removed without prior Revenue approval and who must be a co-signatory on all financial transactions of the scheme. In addition, the scheme must submit annual accounts and regular actuarial reports to Revenue. Revenue rules also place strict limitations on the investment options open to such schemes. These include a prohibition on loans to the scheme member and on self-investment in, for example, the employer’s assets and restrictions on property investment.
As regards property investment, while such investments are permitted, the vendor must in all cases be at arm’s length from both the scheme and the employer including its directors and associated companies. Property disposals by a scheme must equally be on an arm’s length basis.
The proposal being put forward by the Deputy is that these property related restrictions should be relaxed so that a member of a small self-administered pension scheme could sell an investment property to his or her scheme with a view to divesting him or herself of distressed property assets, with the property then becoming part of their long term pension investment.
While I can appreciate the reasoning behind this proposal, I think it is important not to lose sight of the purpose of supplementary pension saving and the generous tax incentives that the State continues to provide to encourage it. The sole purpose of pension savings is to provide relevant benefits to the scheme member at the point of retirement or indeed earlier in the event of retirement on ill-health grounds. The activity envisaged under the proposal might not represent a prudent investment in many cases and could put the availability of those benefits when needed at undue risk. The regulatory and tax regimes governing the activities of supplementary pension provision are designed to encourage an individual to save for a pension and also to protect and secure those savings until they are needed in retirement. Those savings are not available for any other secondary purpose such as resolving financial difficulties of the scheme member, however unfortunate and difficult those situations can be.
I also appreciate that the proposal is well intentioned. However, it would be difficult, if the rules governing investment by SSASs were relaxed in the manner suggested, to resist calls for a broader relaxation to allow, for example, equally distressed assets such as family or holiday homes to be acquired by a pension scheme or to permit investment in the employing company to stave off short term cash flow difficulties. In other words, it could be a first step towards a dismantling of the very rules that are in place to protect an individual’s pension savings. For all these reasons I would not be in favour of this proposal.